Having two tax regimes bad idea, unacceptable, says Chidambaram

Senior Congress leader and former finance minister P Chidambaram on Tuesday, 23 July said having two income tax regimes is a "bad idea" that will lead to tax arbitration and people will be confused as to which one to choose.

Union Finance Minister Nirmala Sitharaman on Tuesday hiked standard deduction by 50 per cent to Rs 75,000 and tweaked tax slabs under the new income tax regime to provide more money in the hands of salaried class with a view to boost consumption.

Asked whether the move would incentivise people to move from the old tax regime to the new one in personal income tax, Chidambaram said having two tax regimes is a "bad idea".

"If you want to introduce a new tax regime, you should announce it well in advance and say that from this financial year on, everybody has to move to a new tax regime. Two tax regimes are unacceptable and a bad idea," he said.

It will lead to tax arbitration and people will be confused if they should to remain in the old regime or switch over to the new one, Chidambaram said during a press conference at the AICC headquarters.

"I'm told... you can switch once and switch back, but if you switch for the second time, you can't switch back. I am thoroughly confused.

"I don't think they have given great incentives to switch over to the new tax regime in this budget. They did it in the earlier budget. This time, they only reduced the tax effect by enlarging the slabs. But that will only benefit people in the 0-20 per cent tax bracket," he said.

"I don't think it benefits anyone above that bracket. The answer is that I do not, and I would not support a two-tax regime," he added.

Replying to a question on long-term capital gains, Chidambaram said, "As I speak, there's total confusion. They removed the second proviso to Section 48. But the third proviso refers to the second proviso. So unless you go through the fine print of the Finance Bill, read it carefully, and analyse it, I can't come to any conclusion."

"But by and large, the commentators on television seem to think that, as far as real estate is concerned, the indexation benefit has been removed, and any sale after July 23, 2024, will be without the benefit of indexation," he said.

"Now, a large number of people who have bought houses whose values have appreciated will certainly suffer. But as I said, I would reserve my judgement on the effect of the tax changes," Chidambaram said.